2020 U.S. housing outlook

By Russell Price, Chief Economist, Ameriprise Financial

Key Points

  • The U.S. housing supply remains tight, which is to the advantage of potential sellers.
  • A recent pull-back in mortgage interest rates could offer the opportunity for considerable savings for homeowners.
  • A tight labor market may constrain new home building for some time.

We once again approach the traditional spring selling season in the U.S. housing market amid a backdrop of tight availability and strong demand. Such dynamics have defined the housing market for several years.  Nearly a decade after the housing crisis, homebuilders are still struggling to produce the number of housing units the U.S. economy needs to meet the demands of a growing population. 

According to the Census Bureau, new housing starts improved in the fourth quarter of 2019, but the acceleration was at least partially due to favorable weather conditions. For full-year 2019, builders started construction on approximately 1.3 million new housing units (includes apartments), up about 3.2% from 2018.1 

While the pace of new construction has improved, most gains have come at the upper price-points of the market. Construction of more affordable units seems to be improving; but the opportunity to accelerate new construction of affordable units remains constrained, most notably by an increasingly tight labor market. 

The modest gains in new building has led to shortages in the existing home market. In 2019, existing home sales of 5.34 million in the U.S. were flat compared to 2018 levels, according to the National Association of Realtors. The median sales price rose 4.9%, as it remained a seller’s market in most areas of the country. In fact, 2019 ended with just three months’ supply of homes for sale2, versus the six months’ supply that historically has been seen as a balanced market for sellers and buyers alike.

Refinancing once again an opportunity

Even if you’re not actively looking to buy or sell a property, a strong financial strategy still calls for watching current market conditions. After all, for many of us, our home is our most valuable asset and our most significant investment. 

Over the last several years, lower interest rates have periodically offered millions of homeowners the opportunity to refinance their mortgage, which often results in a lower monthly payment and considerable interest cost savings over the life of the loan.  

Current conditions may offer that opportunity again. According to mortgage analytics company Black Knight Financial, an estimated 9.4 million mortgage holders could save an average of $264 per month by refinancing at today’s mortgage rates (based on a recent national average 30-year mortgage rate of 3.5%, according to data from the Mortgage Bankers Association). In aggregate, this represents potential consumer savings of $2.5 billion per month, the highest potential savings in 20 years, according to the firm.3   

Black Knight based its figures on an analysis of borrowers who have at least 20% equity in their homes, a credit score of at least 720 and a current mortgage rate that is at least .75% above prevailing levels.3 However, refinancing may not be right for everyone in this position. Besides the monthly mortgage payment, carefully consider the cost of refinancing, changes in the length of the loan and the total interest cost over the life of the loan. 

Evaluate your options to determine your path

The tight labor market is constraining the ability of home builders to provide the housing units the U.S. economy needs. Although this may constrain the pace of economic growth somewhat, for homeowners it’s likely to help boost existing home values over the intermediate-term at least.  

From a broader economic perspective, slow-growing mortgage debts have contributed to generally healthy consumer financial burdens, although rental rates are high. Even if you’re in good shape with your mortgage situation, it may wise to evaluate your options to potentially save thousands of dollars over the longer-term. Your Ameriprise financial advisor can provide you with personalized advice that considers housing within your overall financial picture.